The Brazilian Constitution guarantees the fundamental right to freedom of association with any union without government intervention. Therefore, employees have the option of becoming a direct member of a union. Once an employee has become a union member, union dues are mandatory.
Under the Labour Code, in order to benefit from a collective bargaining agreement, union representation by the employer or employees is mandatory. Further, representation in the trade union connected with the relevant economic sector is also mandatory, thereby creating a system of so-called 'union uniqueness'.
Under the union representation structure, the Labour Code also required employees to pay annual contributions to relevant unions (so-called 'union contributions' or 'union taxes').(1) However, the labour reform, which came into force on 11 November 2017, amended this provision, making union contributions optional. Employees and employers must now provide their prior and express authorisation in relation to their union representation.
Brazil is known to have more unions than any other country. In 2017 there were 16,491 unions in Brazil, of which 11,240 were employee unions and 5,251 were employer unions. In 2016 union contributions totalled Rs3.5 billion (approximately $900 million), of which employee unions received Rs2.1 billion (approximately $600 million). Therefore, instead of unions being supported by union dues (ie, the amounts paid by members), union contributions (ie, the amounts paid under the union representation structure) sustained the union infrastructure.
This provision in the Labour Code created significant backlash, resulting in many lawsuits being filed before the Supreme Court. After the labour reform was enacted, more than 15,000 lawsuits were filed to challenge union contribution-related matters.
In total, employer and employee unions filed approximately 19 lawsuits before the Supreme Court against the labour reform's provision which made union contributions optional. These lawsuits claimed, among other things, that:
- the provision was unconstitutional; and
- it would directly affect union activities, as they would lose approximately 80% of their revenue source.
The attorney general responded to the lawsuits, upholding the constitutionality of the provision followed by the owners' associations of certain economic sectors, as well as another lawsuit filed by an owners' association, under the amicus curiae principle.
On 29 June 2018, by way of a six-to-three vote, the Supreme Court ruled that the end of mandatory union contributions was constitutional.
In short, the arguments for mandatory union taxes were as follows:
- Taxes should be changed only by the federal statutes passed by a supermajority, as federal statutes have different voting requirements compared to federal laws such as the labour reform, which require only a simple majority vote.
- The alteration could weaken the union system, making it harder to defend employees against employers' arbitrariness.
- The change also involves a tax waiver by the government, since a part of the union taxes were directed to federal social programmes.
Despite these arguments, the majority highlighted the following in its decision:
- Although referred to as a 'tax', union taxes are not the same as taxes collected by federal, state and municipal governments and can thus be altered by federal laws.
- No one can be required to join a union based on the fundamental right to freedom of association.
- The number of unions is excessive (more than 16,000), while only 20% of workers are unionised, which generates social loss.
- On several occasions, unions have engaged in political activities, including launching and supporting politicians and financing political parties using income collected by union contributions, which evidences that the union structure must be reformed.
- Ending mandatory union contributions does not weaken unions, as they have many other revenue sources (including union dues).
The Official Gazette has not yet published the Supreme Court's decision. Therefore, the parties may still present motions for clarification; however, these should not change the Supreme Court's decision substantially.
The labour reform has ended mandatory union taxes, and the Supreme Court has found this change to be constitutional. The court's decision upholds the fundamental right to freedom of association guaranteed by the Constitution.
This was the first challenge to the labour reform and the Supreme Court based its decision on strict legal grounds. As a result, there will now be a change in union negotiations in Brazil, as unions may create obstacles during negotiations which employers must be prepared to overcome. On the other hand, the majority of employees are in favour of the Supreme Court's decision. This decision will undoubtedly be a challenge in future collective bargaining negotiations.
For further information of this topic please contact Vinicius Sabatine or Marina Dutra Marques at Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados by telephone (+55 11 3147 7600) or email ([email protected] or [email protected]). The Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados website can be accessed at www.mattosfilho.com.br.
Endnotes
(1) Union dues are mandatory payments by employees who have agreed to become an associate or member of a union. On the other hand, union contribution or union tax were a mandatory annual payment by employees (regardless of whether they were a union member) to the union that represents their profession in connection with their employer's economic sector.
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